Texas is often touted as a tax-friendly state for retirees, with no individual income tax and a relatively low cost of living. However, there are several common misconceptions about taxes in Texas that residents need to be aware of. In this blog post, we’ll debunk some of the most prevalent tax myths and provide accurate information to help you make informed decisions.
Myth 1: Texas has a low cost of living
While Texas does have a lower cost of living compared to some other states, it ranks only 19th out of 50 states in terms of affordability, according to the Missouri Economic Research and Information Center. This means that while Texas may be more affordable than some places, it’s not necessarily the cheapest option.
Myth 2: Texas has no income tax
One of the biggest draws of Texas is the lack of individual income tax. However, the state makes up for this by having some of the highest property taxes in the country, ranking among the top six highest states according to the Tax Foundation. Additionally, Texas has a combined sales and use tax of 8.25% on everyday items.
Myth 3: All gifts are tax-exempt
Many people assume that all gifts are tax-free in Texas. However, this is not the case. While some cash gifts under $50,000 from non-relatives may be exempt, donations such as jewelry, immovable property, shares, and securities are not. It’s important to understand the specific rules around gift taxation to avoid any surprises.
Myth 4: Deductions are only available with HRA
Another common misconception is that you can only claim deductions on house rent if you receive a House Rent Allowance (HRA) from your employer. In reality, even if you don’t have an HRA provision, you can still obtain an exemption under Section 10(13A) by filing Form 10BA. This allows you to claim a deduction on your house rent payments, regardless of your employer’s policies.
Myth 5: Interest income is not taxable
Many people believe that interest income earned from bank savings accounts, post office savings accounts, fixed deposits, or recurring deposits is not taxable. However, this is not true. All interest income must be declared in your income tax returns and is categorized under ‘Income from other sources’. While there are some provisions like Section 80TTA that allow for a tax exemption of up to Rs 10,000 per year on interest income from bank savings accounts or post office savings accounts, the rest of the interest income is still taxable.
By understanding and debunking these common tax myths, Texas residents can make more informed decisions about their finances and tax planning. It’s always best to consult with a tax professional to ensure you are taking advantage of all the tax benefits available to you while also fulfilling your obligations.